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Am I saving enough to retire? You might not be, if you honestly think it’ll cost you less to live, once you retire (at whatever age). Most people fail to consider just how expensive retirement can be. Because they fail to factor in key expenses or drastically underestimate costs.
Have you really sat down to consider the expenses you’re likely to face in retirement? What does your dream retirement look like? Does it mean traveling the world first-class, country club living, buying a hobby farm, staying near grandkids, or something else completely?
Here are some major expenses most retirees didn’t see coming. Are they in your vision?
1. Recreation – what on earth will you do with all that time?
One error many retirees make is assuming their recreational or entertainment expenses will stay the same. In most cases, they won’t. This should make you ask again, “Am I saving enough to retire?”
You see, while you’re working, work takes up the largest part of your day. If you include your commute and prep time, it likely accounts for 10 to 12 hours of your day.
Once you retire, you’ll probably (hopefully) want to spend all of that newfound freedom doing something other than watching TV. Traveling, going out to eat, playing golf, and shopping cost a lot more than heading off to work. If you start entertaining, this also comes with a price tag.
You never know what new hobbies or interests you may develop. Maybe golf never sounded appealing, but you develop friendships with golfers and now want to play. Or maybe you’ll discover a love of art and want to start collecting.
Assume you’ll find new hobbies and interests, and plan accordingly. You’re replacing 50 or 60 hours a week of income-producing activity with activities that likely cost money, not produce money. Now do you see why you need to ask, “Am I saving enough to retire?”
2. Basic living expenses – it’s expensive to be alive!
Even if you have your mortgage paid off before retirement (which many don’t – but it’s a good idea), being alive still costs plenty. Think cable, internet, utilities, and other basic living expenses.
Plus, you’ll still need to pay property taxes – which rarely decrease over time. The same goes for your other monthly expenses… like the cost of food and most if not all types of insurance.
Don’t forget about miscellaneous things like haircuts, home maintenance, car maintenance… all of which will certainly rise in price. Inflation is almost guaranteed to go crazy if some of the “government reforms” being called for come to pass.
3. Health care expenses – a major force to reckon with. Are you saving enough to retire and have health expenses?
You may think you won’t have to worry about the cost of health care when you turn 65, because you’ll be on Medicare then.
I hate to break it to you, but Medicare is not free by any stretch. Health care can be one of the biggest expenses for retirees. That’s true, whether you retire at 45 or 65.
Access to reasonable health care is tough to get in individual plans before 65. But make no mistake, health care costs will suck up thousands of dollars a year even once you turn 65.
A recent study conducted by Fidelity found that a 65-year-old couple retiring in 2020 will fork out $295,000 on average for health care costs over their remaining lifetime. Just for health care! This is up 3.5% from 2019. If inflation continues at this pace, your $295,000 need will rise to $828,000 in 30 years. Pushing a million dollars just for health care!
The number includes Medicare premiums (yes, you do have to pay premiums!), deductibles, copayments, plus additional premiums and deductibles for coverage to fill in the (many) gaps of what Medicare doesn’t cover.
Then there are things like certain lab tests, which you may have to pay for out-of-pocket. What’s more, many doctors are bailing out of Medicare completely and becoming private-pay doctors. Visit one of these doctors, and you’ll pay a few hundred dollars per hour for a health consultation or checkup. If you’re there a few times a year, you could easily rack up another thousand dollars a year, per person.
Still assuming that you’re saving enough to retire? You could spend a million just on health care. Better double up on your plan.
Then there’s the number the Fidelity study did not even factor in…
4. Long-term care – the number Fidelity “forgot.”
The health expense the Fidelity study neglected, despite the fact that 70% of older adults will need it at some point[i] is long-term care.
Medicare rarely covers long-term care, and you have to be nearly destitute before Medicaid kicks in. Yet long-term care can cost you a pretty penny. Median annual costs today (in 2020) in the U.S. (nationwide averages), according to Genworth[ii] are:
- In-home care – homemaker services $53,024
- In-home care – home health aide $54,203
- Adult day care $20,085
- Assisted living facility $50,070
- Nursing home facility – semi-private room $92,860
- Nursing home facility – private room $105,266
Obviously you’ll pay far more in some states than others. Fast-forward 20, 30, or 50 years, and you can easily boost these numbers by about 4% per year. Which makes for another high-ticket item.
You can buy long-term care insurance, but premiums cost a pretty penny. Some blended policies combine life insurance and long term care.
I realize that if you’re 23 or 25, this may seem insignificant and distant. But don’t blow it off. Please. Right now, you have time on your side. Now’s the time to start saving, investing, preparing.
Don’t pretend your case will be different. Everyone goes through the same stages of life. Unless you don’t make it till you’re old, you will too. This reality may also help you understand the dilemma your grandparents may be facing right now.
It’s certainly a smart money move to guard your health today and along the way by eating smart, exercising, getting enough sleep, and being proactive.
Just as gaining weight happens a little bit at a time, your health can slip away bit by bit while you’re busy with other stuff. And then you have to spend a whole lot of money trying to recover it.
5. Food can cost a small fortune.
Even if you eat frugally, food can cost you a fortune. At least if you want to keep your health. This is one area where you can cut costs. But it pays to be smart about it.
If you choose packaged mac-and-cheese with brightly colored fake cheese, expect your health to repay you in unkind ways.
When I was just out of college, I ate a not-so-wholesome diet of an English muffin loaded with butter for breakfast, a pack of Cheetos for lunch, and a chain-restaurant dinner most nights. It should come as no surprise that I ended up with one of the worst recorded cases of mono within a matter of months.
I was simply gaming the chances of health success in a pretty foolish way.
Loading up on organic veggies and fruit, enjoying freshly laid free-range eggs and grassfed beef, legumes, and organic dairy products can be a much smarter way to eat. Even if the price tag is a bit higher. As they say, you’ll pay for your health one way or the other… either for food or for medicine. It’s cheaper to let food be your medicine.
It’s possible to cut costs (to a degree) and still eat well. Here’s how:
- Ditch soda and junk food. Put those dollars toward healthier choices. Hint: If you don’t have them in your house, you’re less likely to eat the bad stuff.
- Eat at home, not at restaurants. You can control ingredient quality, costs, and portion size much better.
- Consider growing some of your own produce. You can grow a lot of food from a few seeds.
- Try to connect with someone who raises chickens for eggs. Even raise your own, if that’s an option.
- Discover tasty ways to enjoy a can of beans. You can get a can of organic canned beans for about $1. It’s cheap protein. Add spices or herbs for flavor.
- Never let leftovers go to waste. Eat them for lunch the next day. Or get them into the freezer for later use. (Label it, so you remember what it is. Ask me how I know…)
- Use everything. Transform leftovers into soup or casserole. Save onion ends, carrot and celery tops, and pepper stalks in a plastic bag in the freezer till you have enough to make a veggie broth. Or compost them.
- Compare prices between local grocery stores, Costco or Sam’s, and Amazon. I’ve seen prices of 3x as much for the same item. And in this case, Amazon Prime was not the clear winner, despite widespread assumptions that they’re always the best on price.
These tips can help you save for retirement. And once a lifetime habit, they’ll be useful during retirement as well.
6. Unexpected expenses – surprises are a fact of life.
Am I saving enough for retirement? Don’t forget to include money for life’s inevitable surprises. A major car repair or one of your children needing money can throw a monkey wrench in your finances.
You may be forced to cover large insurance deductibles. Some Medicare Advantage plans have maximum out-of-pocket costs that can soar as high as $6,700 per year. Per person. Likewise, where I live, there’s a $4,300 homeowners’ deductible for certain storm damages. May seem ridiculous, but it’s life. This makes it a good idea to have access to some type of emergency fund, regardless of your life stage.
Am I Saving Enough to Retire? Doubtful, If You Under-Plan
Retirement can be a challenge to plan for. It’ll be far more expensive than you ever imagined. Made more difficult by not knowing whether you’ll live to be 70 or 95… a cool 25-year difference.
It’s not too early to start planning. Today.
It’s impossible to foresee every expense. But many can be anticipated and saved for. You’ll have more free time. And will want to fill that time with interesting and meaningful activities. Most likely, you’ll also have more health issues. Expect wild inflation. Then be happy if it doesn’t happen.
Consider what you like to do, the lifestyle you want to live, the expenses needed to support that lifestyle. Then, get started today. I can assure you, it’s not too early. Not by any stretch.
[i] https://www.genworth.com/aging-and-you/finances/cost-of-care.html (Retrieved Sept. 17, 2020)
[ii] https://www.genworth.com/aging-and-you/finances/cost-of-care.html (Retrieved Sept. 17, 2020)